ACCA, Deloitte: Closing the 'accounting for intangibles' gap

18 March 2019

A joint report from ACCA and Deloitte shows there are increasing concerns that financial statements no longer reflect the underpinning drivers of value in modern business – especially when it comes to accounting for intangibles, such as research and development (R&D) costs.

Many have noted the increasing gap between the values of companies based on their share price and the tangible asset values in their financial statements. This is a global issue and several actors such as the Task Force on Climate-related Financial Disclosures, EFRAG, CDSB, and the IIRC are reflecting on how disclosures should reflect a more holistic picture of the interdependencies among the factors that affect companies’ ability to create value over time.

For ACCA, major components of this gap are the intangibles that are recognised as valuable by the market but are not recognised as assets by financial reporting. As part of the wider debate on intangibles, the global Accountancy body and Deloitte recently published a report called The capitalisation debate: R&D expenditure, disclosure content and quantity, and stakeholder views, which looks at the extent to which companies using IFRS recognize development costs as assets in different countries and in different sectors. It investigates the factors that may lie behind that asset recognition and makes some suggestions as to how reporting of R&D might be improved.

Richard Martin, ACCA head of Corporate Reporting and lead author explains: ‘The intangibles may include the value of the workforce, knowhow, customer relationships, brands and a pipeline of new products. The IFRS only allow for a restricted recognition of these assets, which is why there is a gap. At present, meeting the criteria of what is recognised as an asset can be a matter of judgement giving management considerable scope to decide whether they prefer to expense these costs as incurred or to capitalise them. IFRS could require, and companies should provide, much better disclosures than currently.

Full press release

Full report


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